Cyprus struggles to pay public wages

Cyprus may struggle to pay public sector salaries in December unless a bailout deal is clinched by mid-November, an official document quoted finance minister Vassos Shiarly as saying.

The confidential minutes of an Oct 3 meeting in parliament quoted Shiarly as saying Cyprus might be “butchered” if international lenders dealt with the small country in isolation from other eurozone states that need financial aid.

The minutes, reported in the Politis newspaper yesterday, illustrated the growing unease at delays in meeting financial aid needs, which the troika has put at up to €16bn.

Cyprus, shut out of international capital markets for more than a year, was forced to turn to its EU peers for help after its two largest banks took overwhelming losses on a writedown of Greek sovereign debt earlier this year.

Meeting December’s payroll commitments was contingent on the goodwill of bankers, the minutes quoted Shiarly as saying.

Shiarly said that if a deal were agreed, Cyprus could get a first instalment of aid by Dec 24. Asked if Cyprus would manage until December, he said: “If needs be. We will have difficulties, but nothing can be absolute.

“I can’t make predictions from now, because no banker would undertake a commitment on financing, even when times were good. I’m just saying it’s manageable.”

He cited disagreements between Cyprus and lenders on the recapitalisation requirements of its banks. Lenders believe Cyprus needs €10bn for banks alone, while Cypriot authorities put the total nearer €5bn.

Cyprus sought financial aid from the EU and the IMF in June, but has still not concluded a bailout deal.

The minutes show Cypriot authorities clearly under-estimated the complexities of the process.

A deal should have been in place by Oct 20 to put the issue on the agenda of the Nov 12 meeting of eurozone finance ministers in Brussels, Shiarly told parliament.

A government source said they believed a deal was close.

“I’m optimistic any differences can easily and swiftly be resolved,” Shiarly told reporters yesterday. He said the troika would possibly come to Cyprus early next week.

— Reuters